"This Is Going To Blow Sky High" - Observations On Canada's Housing Market

Tyler Durden's picture

For months we've been warning about real estate bubbles re-emerging in various markets around the world from Canada to Australia (see "There Are 66,719 Empty Mansions In Vancouver" and "Vancouver Home Sales Crash 40%, As Toronto Home Prices Soar 22%").  And while facts and figures clearly indicate that certain markets are bubbling over courtesy of all the same mistakes that caused the 'great recession' in 2008, nothing helps to confirm the truly obscene nature of a real estate bubble quite like attending a good ole-fashioned, get-rich-quick real estate expo. As such, below are the musings of one financial market observer who recently attended the Canadian Real Estate Wealth Expo as a joke but walked away convinced the system is about "to blow sky high."

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Originally Authored By Tim Bergin of On Beyond Investing

Originally, I thought this would be a bit of a joke.  There were billboards in all the Toronto subway cars advertising the Canadian Real Estate Wealth Expo - learn how to become a millionaire.  I thought this was so ridiculous, it may be fun.  What better way to experience the top of the housing market than watching Tony Robbins and Pitbull along with a bunch of US real estate professionals explain how Toronto real estate is the path to riches.

Prices were originally $150 per ticket, but I was able to buy for $50.  While it deeply bothers me that I paid $50 to these shameless (amoral) self-promoters, I thought it would be worth it to witness, in person, the top of the housing market.

I had thought, there can’t be that many people stupid enough to attend this, but I was very wrong - 15,000 people were there!  I was blown away.  Bubbles are largely psychological.  This crowd was tangible proof of that.  15k people in one spot listening to Americans explain why real estate in Toronto is an exceptional investment.  The whole experience was horrifying.  The crowd was very well-dressed, middle- to upper-middle class (from appearances), and super excited to hear how much money could be made if you just buy real estate (most of them clearly already owned).

The first real segment of the expo was a panel of Canadian developers and real estate agents giving their views on the market.  It actually started off a touch bearish, which surprised me.  Two of the panelists were saying that prices are exceptionally high and no market goes up forever.  With that slight bit of caution thrown out there, it became a real estate FOMO-building talk.

There are, apparently, two very important things to know when dealing with real estate.  First, you have to face your fear; this fear is to be ignored and then you should ‘just do it’ and 'buy now'.  The next step is find what you can afford and then buy it.  Ignore all ‘non-doers’, don’t overanalyze or focus on the numbers, just fucking buy.  To allay fears the speakers are actually quite clever as they shift between a long to short term focus when it suits.  For example, now is a great time to buy because short-term the market is on fire. If, however, markets cool then you just hold because it always goes up long-term - and you are a savvy long-term buyer, aren’t you?  By showing no scenario where you can lose I can see how this pitch works on the susceptible.

The second important factor in real estate is financing.  Not everyone has money, so what can they do?  The answers were shocking.  Be ‘creative’ was the first response.  Pool your money, borrow from friends and family, own just 5% of a house, get the money however you can and just do it - remember, it only goes up.  Other financing suggestions were get cozy with a lender and they will ‘bend the rules’ for you!  The fact that the biggest condo developer in Canada (Brad Lamb) said lenders will bend (but not break, apparently) rules to get you financing in front of 15k people with most people smiling and nodding was shocking.

So there you go - when it comes to Toronto real estate, just do it (using borrowed money any way you can get it).

The booths outside of the presentation hall were just as troublesome.  Plenty of “high double-digit monthly yields”, retire early with real estate, “everyone needs a place to live - buy apartments” type messages.  Almost all of these pitches were second lien lending.  Most offered yields in the 8 to 10% range.  The presentations all suggested that you can borrow money, if you don’t have it, at 4% and then buy these investments at 10% - easy money.

The apartment pitch booth was like most other pitches - it revolved around stable cash flows + mortgage paydown by renter + equity appreciation = profit.  (Now that all sounds great but owning a condo at current prices in Toronto is a negatively carrying asset, so where does this cash flow come from?)  Further, investing in apartment funds is even better if you borrow the money to do so.  The pitch goes on to explain that levering a 30% return makes you more money than not levering...

The Paramount Equity pitch was also interesting and stated in all caps “HIGH DOUBLE-DIGIT RETURNS ON YOUR CASH, RRSP”.  This product pays monthly, is a second lien mortgage, with a one year term and LTV <85%.  Paramount uses clever language that states they cover the cost of defaults.  By that they mean they pay some of the fees, not the default risk itself.

There was a space to pick up business cards.  I got quite a few from real estate investors.  I plan on emailing them all to learn just how bad their pitch/product is.  I want to learn more about how these second lien investor pools are sourced and just how bad this is going to be.

Also, perhaps there will be an opportunity to meet a bunch of distressed sellers, before they even know it themselves…

Nowhere in any of this was there ever a mention of risk, the dangers of leverage, how terrible negative equity can be, how that can trap you, etc.

The amount of shadow leverage in this system is crazy.  The terms on these second lien loans is 1yr.  What happens when all of these loans are called?  Even lenders with first positions will see clients sell when these loans become due and there is no money to pay them.

This is going to blow sky high.

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Houses Depreciate's picture

I want to buy a "5 ton trucK" Please tell me where to find one. LOL.

Xena fobe's picture

Who has that kind of money, even in China.  This sounds like straw buyers for the PRC.

chubbar's picture

It's hard to get a man to understand something when his job (success) depends on him not understanding (seeing) it (or something along those lines).

Global Hunter's picture

Swmnguy, there still seemed to be a lot of building going on so I think the situation is different. It was more like the life and soul had been sucked out but life was continuing on. A majority of people looked like recent immigrants to Canada or within the last decade and there wasn't much excitement or energy.

I grew up in suburbs near Toronto and I don't usually go back because it has changed so much for the worse. These condos and high density townhouses will be immigrant ghettos in 10 years I am sure. They look shiny when they are new but when the shine comes off they will be like French no go shit holes I'm sure.

Killdo's picture

I bought 2 bigger condos in good areas of Toronto  for around 150k each back in 2006

Anopheles's picture

Wait until you see house prices !!! 

A semi detached in a good area that's 80+ years old and never been renovated, with one parking spot?  Those are selling for around a million +/- ....  Small builders buy them, renovate them and put them back on the market for $1.5 to $2 million  

 

Killdo's picture

I've seen them  - the smallest, cheaply-made little shitholes I have ever seen - aroudn High Park

TheRideNeverEnds's picture

People scoff now but in a few years when that 500sqft condo sells for 1.3 million will it have been wrong to buy it for 400k with 5% down @4%?

People need a place to live and someone is gonna scoop up all the money these central banks are printing, why not you?

chubbar's picture

Yeah, all those barrista jobs that are being created won't have any problem affording 1+ mill homes. Shit, the 400K is out of their range by at least a factor of 5. The easy money has got folks so used to throwing big numbers around that most people can't even realize what the fuck they are saying. Anyone who thinks that the jobs coming along will aford even the 400K homes are out of their freaking minds.

in4mayshun's picture

Using history as a guide, the drop in house prices will be temporary and currency debasement will resume the upward trajectory. Hell, $1 mil might be a bargain eventually.

keep the bastards honest's picture

cheap by Melbourne Austrlaia standards

Killdo's picture

Buildings in Melbourne are much nicer than Toronto buildings. Canadaians have no style and are cheap. Melbourne architecture very good - the nicest condos I ahve ever seen anyhwere (and in canada they are the ugliest)

Melbourne is a beautiful city with nice friendly people in an environment that feels like a coherent beautiful country. 

Canada does not even feel like a country - more like a refugee camp /shithole. 

And it's very cold like North Pole. Peopel are not at all friendly like in MEL - it's liek a different planet. You cannot compare Melbourne to any of the shitty cities in Canada - they are all provincial, ugly, cold and polluted. And you feel like you are in a refugee camp somewhere in a shittier part of Pakistan. 

Melbourne is a paradise in comparison - great city and great people. 

Plus Australian women are million times better looking ,more intelligent, stylish and friendly. Not at all like Canada

 

peterk's picture

i laughed when i  read all your nonsense..

You obviously are long property in melbourne.... self delusion is the first

sign of madness  buddy!

Melbourne is a backwater  pit compared to canada.

peterk's picture

canada is cheap by  Sydney  australia standards

.... and melbourne is still also cheaper than sydney

 

But the  icing on the cake is that in AUSTRALIA, all  loans MUST be paid unles your bankrupt, loans are FULL RECOURSE unlike that in the US and UK

I guess its because aussies are just smarter than the rest of the people on  earth, so they KNOW a  good investment when they see one.

Like my cousin, who used EQUITY in the  house mortgage to buy   a $200,000 car

and reclassified it as an "investment".

Simple!

ZRizzo's picture

FR notes are a bitch if you're not in the club.

I am Jobe's picture

No different in Austin, Texas or Dallas . Now comes the juicy part, Property Taxes are going up. 

Killdo's picture

Austin is much nicer than any city in Canada

headhunt's picture

It was... until the leftists fucked it up

scv's picture

housing?

 

USA yearly trillions dollar military budget:::

 

could buy every citizen in the United States of America

a BIG fucking house EVERY FUCKING YEAR!

 

 

headhunt's picture

...and we could all be penniless communists with haircuts like Kim Jung-un or murdered and starved to death under some other tyrant

keep the bastards honest's picture

 USSA is the world tyrant. No one wants  to invade the USA and set a communist tyrant over you..  Your country has  200,000 military based in 177 countries...  everyone wants them out.

 7 big wars going every day during Obamas time devastating other countries. Kim and his people have lived in starving  terror since 9/11 because the USSA put them on the list to  be destroyed ... only NK and Iran have survived.  

USSA sanctions on Iran led to death of 500,000 children.  USSA wont be invaded. Maybe sanctioned.

Bibi said "we will squeeze US like a lemon untill its dry then blows away like  dust in the wind".

ZD1's picture

Go suck Justin Trudeau's little clit. 

swmnguy's picture

Correct.  It's very difficult for people to grasp the enormity, in all the senses of that word, of US military spending.

Nobody can tell me we "can't afford" to fix our borders, infrastructure, education, healthcare finance, retirement finance, public finance, etc.  We have chosen to let the bones of our society decay.  It has not been and is not inevitable.  It is a choice.

Batman11's picture

Unfortuntely the Canadian Central Bankers have been in a coma since 1988 and they missed .....

1989 - UK, Japan real estate crash

2008 - US real estate crash

2010 - Ireland real estate crash

2012 - Spain real estate crash

 

Batman11's picture

"What's debt deflation anyway, I've never even heard of it" Stephen Poloz.

Dickhead to his friends.

 

headhunt's picture

Open elevator doors

Pack muppets in elevator until ready to burst

Take elevator all the way to the top

Push all muppets out of the elevator

Take elevator to bottom floor

Lock elevator

NugginFuts's picture

*Set building on fire. 

Funn3r's picture

The elevator cleverly gives you a feeling of space (your apartment will be smaller than the elevator). 

Ben A Drill's picture

Where I live in CA. Condos in 2000 were selling at 100K. Now at 320K. Condo is older, HOA fees higher. Taxes higher, commute is a bitch, much worse than in 2000. All the while wages are increasing below inflation. Now that rates are rising it should be interesting how the banks and city determines property values.

Houses Depreciate's picture

CA? Where guys grope guys walking down the street? No thanks.

Bastiat's picture

Mostly that happens at the airport.

Ben A Drill's picture

Worst possible person on the plant is a Realitor. Me thinks you are one.

Houses Depreciate's picture

And you're likely one of the worst offending gropers in the state.

Oldwood's picture

Nah, the worst possible person on the planet is the one who will vote to take MY shit. Everyone is entitled...to their opinion, but that's it.

It is a imple fact that the world is chocked full of liars waiting to take advantage of another fool (born every minute) and it is a simple waste of time to be hating on them when we should just FINALLY decide to smarten up, stop taking the bait, educate ourselves to the notion that their IS NOTHING FOR NOTHING and get on with life.

Killdo's picture

where I lived (in what they say is the best spot in Venice Beach , CA )- guys used to eat each-other's asses in alleys and scream like teenage girls

Joyo Bliss's picture

I heard the Toronto radio ad for Tony ribbons or robbins or whatever he's called. It was an over-the-phone type of ad. Super low budget campaign. It worked if 15,000 people went!

Go figure.

We first bought in 1989 a year before the crash in Toronto when we were first married. Back then Toronto was now in the world market according to the local real estate salespeople. Same price level as London England. After the crash a year later, we were stuck for 7 years and only upsized by aggressively paying down the mortgage debt.

Renting now - got out of the market 1.5 years ago.

I hear the Asians are now buying here instead of Vancouver. No inventory here. People are getting 20% over asking. Tough to find a cheap place to rent right now as the speculators are trying to up prices - and not to lose money every month on their "investment."

U4 eee aaa's picture

I wonder if any of those suckers realized that those guys made 750K just by doing this seminar. And not all tickets were $50 (but I assume some were free too)

Hillarys Server's picture

Isn't Tony Robbins that seven foot tall guy with big hands and a low loud voice who writes books on how to awaken the giant within so you can buy his books and be seven feet tall too?

HRH Feant's picture
HRH Feant (not verified) Hillarys Server Mar 20, 2017 8:26 PM

Yes. He is the guy that was screaming at people that failed his fire walk and ended up with severe burns on their feet. They didn't believe hard enough. Or walk fast enough. Anyhow the smart ones sued his dumb ass.

Who thinks a shyster like Robbins can teach them how to walk on fucking fire? W/E. Sucker born every day.

in4mayshun's picture

The really smart ones just laughed when asked to walk on hot coals

Bay of Pigs's picture

I wonder where pitz is to refute all these so called facts on the Toronto housing bubble?

Say goodnight on housing Canada. You've had your day in the Sun.

CRM114's picture

Toronto is not all of Canada.

Bay of Pigs's picture

If Vancouver and Toronto blow up all the other major cities are going down too. Victoria, Edmonton and Calgary are all in bubble mode as well. In fact, even depressed logging towns like Port Alberni are way overpriced. That particular town had well over 50 empty CRE buildings on its main downtown area last time I was there. It looked like a bombed out Beirut.

pitz's picture

Right here.  Toronto peaked in 2013 (as did Vancouver) -- what you're seeing right now is sales-mix adjustments running their course as low-end stuff is no longer transacting.  Additionally, foreign capital is non-existent in Canada's' RE market, but the banks are blowing their brains out on providing loans to the sector.  But I have some pretty good insider evidence to suggest they're reigning in things severely at the moment and the next few months could be very interesting to say the least.

Bay of Pigs's picture

I see you still don't actually read the articles before you post. If you did, your comments might make some sense.

Prices in Toronto did not peak four years ago.

pitz's picture

Yes they did on individual identical houses.  Sales 'averages' are heavily influenced by the mix in heterogenous sample sets.  Recently, only the upper percentiles are being sampled because that's all thats transacting.

Toxicosis's picture

Sorry Pitz, but even on individual houses here 2 just sold in Scarborough in a bidding war for over 200.000 dollars over the original asking price.  I know the 2 people who sold and they were stunned by what price and payout they received.  The top I feel is very close, perhaps the summer around the GTA/